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This is a Bursa oil and gas company. You should not be surprised that in using relative valuation to determine whether the counter is cheap or expansive, many compare it with other Bursa oil and gas companies.

The irony is that the 2013 to 2022 correlation between Icon’s revenue and the median revenue of the Bursa oil and gas companies is negative 4%. It does not behave like the sector.

This is one reason why I avoid using relative valuation. The results are easily biased by the peers chosen. Ideally the peers should be the ones with similar cash flow and risk profile. But how many people check for this when selecting the peers?

Of course, in the case of Icon it is academic as it incurred losses for much of the past 9 years. Even its PAT over the past few years were due to asset sale and one-off items.

I estimate that its after-tax operating return [NOPAT / (Equity + Debt)] over the past 9 years ranged from 1.2 % to 6.4 % with an average of 3.0%. I assumed 24% nominal tax rate.

Not exactly an exciting number for shareholders since you could get better returns at lower risk by keeping your money with the EPF. There are better Bursa oil and gas companies to consider.

A lot of it is based on the cycle which for the past decade hasn't been good for O&G especially offshore. So it is also a matter of making a judgment call on the future. Not endorsing ICON but just like someone who told me, if it's simply a rearview mirror, a simple Bloomberg screen and with some excel formulas, we can filter out the stocks to buy.

It is very sad to see that oil majors reporting record profits due to the high oil prices. Yet most of the Bursa oil & gas services companies are not enjoying the same benefit. It makes you wonder that if their performance is not pegged to oil prices, maybe they should not be classified under the oil and gas sector. Imagine housing developer whose business performance is not correlated to the housing starts.

Depending on what O&G services and its market positioning/bargaining power, it takes a while for the effect of high oil prices to pass through the supply chain. This is no different to real estate if we are referring to building materials, home appliances, housing brokerage services, etc. Of course, in Malaysia, there is another dynamic from their supporting role to Petronas.